Home prices show biggest gain since 2006

'The breadth of the increase was across the entire country,' as prices return to mid-2004 levels in latest S&P/Case-Shiller index.

Home prices in 20 U.S. cities rose in August from a year ago by the most since February 2006 as stronger demand boosted values.

The S&P/Case-Shiller index of property prices in 20 cities increased 12.8 percent from August 2012, more than forecast, after a 12.3 percent gain in the year ended in July, a report from the group showed on Tuesday in New York. The median projection of 28 economists surveyed by Bloomberg called for a 12.5 percent advance.

"You've got some momentum," said Brian Jones, senior U.S. economist at Societe Generale in New York, who forecast a 12.9 percent increase in home prices. "The more encouraging thing is not just that prices accelerated, every area reported higher selling prices. The breadth of the increase was across the entire country."

Tight inventories have boosted prices as buyers compete for a limited number of properties for sale. While housing continues to be a source of strength for the economy, higher mortgage rates and limited improvement in the labor market and wages risk slowing the pace of progress.

As of August, average home prices in the U.S. were back to mid-2004 levels, and the 20-city index was up 22.7 percent from its March 2012 low.

Retail sales

Another report on Tuesday showed retail sales excluding motor vehicles rose 0.4 percent in September after a 0.1 percent gain, indicating households were sustaining the economic expansion before the government shutdown this month shook confidence. The Commerce Department's figures showed total sales dropped 0.1 percent, restrained by the biggest decrease at auto dealers since October 2012, as purchases early in the month were included in the August data.

Stock-index futures rose, after the Standard & Poor's 500 Index climbed to a record, as Federal Reserve policy makers begin a two-day meeting. The contract on the S&P 500 expiring in December climbed 0.1 percent to 1,760.7 at 9:28 a.m. in New York.

Estimates in the Bloomberg survey ranged from year-over-year home-price gains of 11.6 percent to 12.9 percent. The S&P/Case-Shiller index is based on a three-month average, which means the August figure was influenced by transactions in July and June.

"The monthly percentage changes for the 20-city composite show the peak rate of gain in home prices was last April," David Blitzer, chairman of the S&P index committee, said in a statement. "Since then home prices continued to rise, but at a slower pace each month. Recent increases in mortgage rates and fewer mortgage applications are two factors in these shifts."

Unadjusted prices climbed 1.3 percent in August from the previous month.

The year-over-year gauge, which uses records dating back to 2001, provides a better indication of price trends, according to Karl Case and Robert Shiller, creators of the index. Earlier this month, Shiller was one of three economists awarded the 2013 Nobel Prize in Economic Sciences for research on how financial markets work and assets such as stocks are priced.

All 20 cities in the index showed a year-over-year gain, led by a 29.2 percent increase in Las Vegas. Values advanced 25.4 percent in San Francisco and 21.7 percent in Los Angeles.

Higher borrowing costs are already starting to bite. Fewer Americans signed contracts to purchase existing homes in September, the National Association of Realtors reported on Monday. The group's index fell 5.6 percent, the most in more than three years and the fourth straight decline.

Existing-home sales, measured when a deal closes, also fell in September for the first time in three months, the Realtors' group reported last week. Purchases dropped 1.9 percent to a 5.29 million annual rate.

The average rate for a 30-year fixed mortgage was 4.58 percent in the week ended Aug. 22, the highest level since July 2011. It's since fallen, averaging 4.13 percent for the week ended Oct. 24, according to Freddie Mac in McLean, Va.

Homebuilders and their suppliers are getting a lift from the housing recovery. Weyerhaeuser Co., a timber supplier and developer based in Federal Way, Wash., expects to close more than 1,100 homes in the last three months of this year, up about 35 percent from a year ago, President and Chief Executive Officer Doyle Simons said.

"We continue to be encouraged as long-term favorable housing fundamentals remain in place," Simons said on an Oct. 25 earnings call. "With that said, the housing recovery appears to have taken a slight pause due to higher home prices, higher interest rates, although still very low by historical standards, slowing job growth and the antics of our government."

Ultimate Fall Makeover: Easy Budget Friendly Outdoor Projects

Fall is officially here! I love seasonal decor, and fall is one of the best seasons to perk up your garden, doorway, or walkway to give your home some instant curb appeal. Some simple home improvements don’t have to mean splurging – there are lots of budget friendly projects that don’t make a hole in your wallet or take weeks to complete.

Take a look at these small subtle changes that can make a huge difference to the exterior of your home:

Plants Make an Instant Impact!
Bring fall color to your yard with large shrubs and small, fall colored trees like a golden Japanese maple or an Austrian pine. Grouping together shrubs and trees in various sizes will block views of your garden, adding depth and mystery to your landscape. You can also add hanging baskets filled with autumn colored fall blooms to brighten up your porch and lawn.

Dress up your Doorway
Start this process by replacing outdated door handles, rusty locks and giving your front door a fresh lick of paint. Try contrasting colors or a bright red door to welcome the soon-to-be holiday season. If your home features an old or a faded house sign, look for a modern alternative such as slate or acrylic. Frame your doorway with plant pots either side of it, or a creeping plant such as ivy surrounding the door frame.

Pamper your Driveway and Walkway
If the path leading to your door, or your driveway, has any cracks in it then there is no doubt these will get worse over time, possibly causing an costly entire replacement. Once these cracks appear seal them right away with a tube of sealant.

You should also improve the safety of your pathways at night- invest in some lighting to run alongside the path or solar lights for a perfectly illuminated front garden.

Cleaning Gutters and Composting
Placing fine mesh or netting over your gutters will stop them from getting clogged with leaves in the autumn months, and eliminate blocked gutters and water damage.

Start composting! Fallen leaves, cut grass and even your fruit and vegetable peelings make great compost for your plants next year.

5 Things to Know About Buying a Fixer-Upper

By Scott Sheldon

Published October 17, 2013

Credit.com

REUTERS

So you’re buying a fixer-upper? The house looks good, needs some work and is in a desirable neighborhood. But what might seem like a great fixer-upper property could actually be a money pit. Let’s look at some common potential issues with a home that could easily derail an appraisal and your mortgage.

Here are some common red flags that could halt your loan – and they come up more frequently than one might think. And just a note: It’s all about the appraisal and contract. If the problem isn’t listed in the appraisal or listed as a condition of sale within the purchase contract, it shouldn’t delay or deny your loan.

Roof

Many resale homes have worn-out roofs that must be replaced at some point down the road, some much sooner than others. In this situation, your real estate agent is bound to identify it right upfront. Get at least a couple of quotes to determine how much shelf life the roof actually has, and the costs associated with repairing or replacing the roof if need be. If the roof is shot (or worse — has a leak), and it’s identified in the appraisal as “subject to condition,” it will have to be fixed in accordance with the appraiser’s comments. It will also mean a second visit from the appraiser to sign off on the completion of the repair.

Open Subfloor

This one is biggie. Open and exposed subflooring is an automatic red flag because it presents a potential health and safety concern for the buyer of the property. As such, this is guaranteed to stop the loan, and the appraiser will be mandated to notate it in the appraisal as a condition that needs to be satisfied to make the property lendable.

Exposed Wiring

This seems obvious, right? Well, in many cases homes have exposed wiring either on the exterior or the interior of the home, which poses — you guessed it — another health and safety concern. It would be best to repair any exposed wiring prior to the appraiser visiting the property for the first time.

Dry Rot

Whether or not a rotten area is viewed as a condition of hazard depends on the individual appraiser. In most cases, appraisers simply want a rotted area repaired to make an appraisal clean — and also to cover their backside, so to speak.

Pest Damage

If there is large-scale pest damage — for example, if any average Joe can see obvious termite or pest damage when viewing the home — then yes, it’s probably going to be need to be fixed. However, it’s more common to see it identified as a condition of sale in the real estate purchase contract — at which point it must be fixed.

Who Pays for the Repairs When Buying a Fixer-Upper?

Such repairs could be paid for by buyer, seller, listing agent or buyer’s agent. More commonly, the buyer typically pays for such repairs to the property, but this is always negotiable. It can be paid by any one of these parties, even be split multiple ways.

As an informed home buyer, you’d want to make sure your loan is approved with the lender prior to making any repairs. The last thing you want to deal with is fixing repairs on a property you don’t own yet when you’re loan hasn’t been signed off.

There are other repairs that inevitably come up when looking at properties, including the property needing a CO2 detector (which is a law in many states), obvious repairs such as broken windows or an unstable deck are all examples of health and safety concerns. It’s not the lender that delays the loan in these situations. Rather, it’s the scope of the repairs as notated by the appraiser, as well at the time it takes to have those items repaired, that can slow down the lending process.

Whatever the case may be, proactively communicating with your mortgage lender and real estate agent about any repairs that need to be done is the best course of action to take to ensure the financing for your purchase comes through.

How Much Home Can You Afford?

You’ve rented for years and are yearning to buy a home of your own. But how do you know what your house-hunting budget should be?

Good news: With just a little financial information you can actually do thoseaffordability calculations before you officially begin shopping for a mortgage. Here are the top things lenders typically consider when determining how much house you can afford.

Debt-to-income ratio

One of the first factors a lender will analyze is your debt-to-income ratio, or DTI. Lenders use this measurement to ensure that you’ll have enough income to cover both your new mortgage payment and any existing monthly debts such as credit card, auto loan and student loan payments.

Generally most lenders want your debt-to-income ratio, including your anticipated new monthly mortgage payment, not to exceed 36 percent. The ratio is calculated by taking your total monthly debt load and dividing it by your monthly gross income.

What does that mean in dollars and cents? Someone who earns $5,000 per month and carries $500 in monthly debt would have a DTI of 10 percent. This borrower generally could be approved for a maximum monthly mortgage payment of $1,300, including property taxes, homeowners insurance and private mortgage insurance. Someone making the same salary but carrying zero debt generally could be approved for a maximum monthly mortgage payment of $1,800.

Credit considerations

There are several key factors in securing a mortgage loan, and your credit is one of the most important elements. Your credit scores is based on your payment history, overall level of debt, length of credit history, types of credit and applications for new credit.

If your credit score falls within an undesirable range or includes unfavorable marks, traditional lenders might be leery of approving you for a loan. You may be able to obtain a loan, but you’ll likely pay a higher mortgage rate, which will ultimately result in a higher mortgage payment.

Well before you apply for a home mortgage loan, pull your credit report to review where you stand, and research the requirements you need to meet with your desired lender. Understanding your personal credit profile and the lender’s expectations will help you understand the interest rates you likely qualify for and the terms your loan will likely be.

Down payment requirements

With the exception of Veterans Affairs (VA) loans and some special programs for first-time buyers, a home purchase requires that you have some cash on hand. How much? Anywhere from 3.5 percent of the sales price for a Federal Housing Administration (FHA) loan to as much as 20 percent for a conventional loan. Expect to get a better interest rate if you’re able to make a down payment of at least 20 percent.

Keep in mind that the down payment amount doesn’t include closing costs, which are fees related to the purchase of the home. Typically, buyers pay between 2 percent and 5 percent of the purchase price of the home in closing costs.

The big picture

If you have less-than-amazing credit, then you may want to consider waiting to purchase a home and making changes in your spending habits to improve your credit score. Many experts suggest before you even consider buying a home, you should be debt-free and have three to six months of expenses saved — in addition to your down payment and closing costs.

“Being debt-free or close to it with some money in the bank is optimal,” said Tiffany Kjellander, owner and operations manager of Augusta, NJ-based EXIT Towne & Country Realty. “It can be tough to hear that it’s not the right time for you to look for a house, but the truth is that getting your financials in order and putting some money in the bank could keep you from losing your home if you get sick or lose your job down the road.”

Further, Kjellander advises that potential homeowners think long term. The cost of homeownership extends beyond the monthly payment and includes routine maintenance and repairs, homeowners association dues and additional utilities that you might not have paid while renting.

“Just because you’re approved to spend $3,000 per month on a house doesn’t mean you have to go that high,” she said. “Buying a home is a huge financial decision. No one should enter into it blindly.”

Asian buyers scoop up 'bargain' million-dollar California homes

The continuing influx of well-heeled homebuyers from Asia has San Francisco Bay Area real estate firms competing for a lucrative and growing slice of the region's residential market.

"It has gotten big enough to where people are starting to pay attention to it," said James Yang, an agent with the Sereno Group in Palo Alto,Calif. "If you read the Chinese newspapers or listen to Chinese radio, there are ads from Bay Areareal estate agents trying to reach out to that demographic."

One enterprising Palo Alto real estate broker, Ken de Leon, bought a Mercedes-Benz van that seats 14 and is using it for tours with a Mandarin-speaking agent. Passengers one recent Saturday included an older couple from China who have lived in San Jose, Calif., for a year, and a younger man shopping for a brother who works at Apple.

With its good schools and Silicon Valley address, Palo Alto has become a point of interest for many mainland Chinese shopping for a second home or planning to move to the area, de Leon said. Among them are people cashing in on gains from a run-up in real estate values in China in the past decade.

On a recent weekend, the van slowed as it passed the home of late Apple Inc. chief Steve Jobs and, later, the garage where David Packard and William Hewlett founded Hewlett-Packard Co. Each time the van passed a school, a second de Leon agent called out its Academic Performance Index score.

The tour ended at a home in Los Altos Hills, Calif., that was listed at $3.998 million. Less than a week later, it had drawn three offers.

De Leon said he has sold at least 20 homes to buyers from China in the past year, usually in the $1.5 million to $2.5 million range. Roughly half are buying as an investment, a third are buying because of the area's highly rated schools, and one-fifth are buying second homes, de Leon said.

And it was already quite large. A National Association of Realtors study reported that Chinese – including those from Hong Kong and Taiwan – were the second largest group of international homebuyers behind Canadians, paying a median price of $425,000 for U.S. residential real estate. The association said 53 percent of Chinese buyers who bought in the U.S. bought in California.

"Compared to Asian prices, Palo Alto is considered pretty dirt cheap," said Kenny Weng Kong Lo, general manager of Intero Real Estate Services' Hong Kong office. Intero also has an office in Shanghai.

Lo's team recently helped the head of a Chinese company expanding in the United States buy a second home in Los Altos Hills for more than $6 million. Another client, a professional relocating from China to the valley, just purchased a home in Palo Alto for $2 million, he said.

Mark Wong, an agent with Alain Pinel, said he's taking a team of agents to China in December. "We'll connect with people who want come to the U.S. and people who want to diversify their portfolio," Wong said.

"Chinese buyers are everywhere nowadays," said Ellen Osmundson, managing partner of MJ Real Estate International in Walnut Creek, Calif., and president-elect of the East Bay chapter of the Asian Real Estate Association of America. "It's not just the Bay Area; it's the entire country."

Osmundson helped organize a China-U.S. Real Estate Summit for Chinese and American agents in Beijing, Shanghai, Hangzhou and Shenzhen last year. "You really have to step out there to understand what's happening," she said.

In the East Bay, buyers from China "are going after good schools and they come prepared," she said. "They even know the school district boundaries. They want a little bit of backyard and want two stories, if possible."

Coldwell Banker launched a pilot program this year with an immigration company to help affluent Chinese invest in key U.S. cities and possibly emigrate here to start businesses and buy houses. The company has "lots of Hong Kong and mainland China offices," said Rick Turley, president of Coldwell Banker Northern California Real Estate. "They're trained to do business in China but they're sending us people who are buying here."

Behind the price increases are a "combination of buyers coming predominately from China and just so many others from hundreds of communication and digital companies. There are the obvious big ones like Facebook, but for every Facebook there's got to be another 100 similar smaller companies that are being fueled by the tech and information blitz that's going on," Turley said.

Minhua Jin, an agent with Intero's Silicon Valley office, said she recently handled the sale of three houses in Saratoga, Calif., to buyers from China based on their floor plans alone – the houses haven't been built yet.

"On every listing from Palo Alto to Saratoga, we have a good portion of buyers whose money is coming from China," she said. "I hear from buyers that in China, the real estate market has gone up so much in the past 10 to 15 years that everyone who purchased property a long time ago has made a good fortune. In cities like Beijing they've seen up to 10 times in appreciation."

When they come to the U.S., she said, "they are comparing square footage cost here to Chinese living space and it's still quite low. They feel like for the money they are spending, they get much more here," Jin said.

The Chinese government may have motivated some of these buyers when it announced this year that it was going to enforce a 20 percent tax on real estate transactions. That set off a flurry of selling by people who had held real estate for a long time and had large gains.

"That's a reason they started moving money heavily," said Intero agent Jinny Ahn. "People are cashing out their property and moving money to the United States. Three (million) to $4 million is considered not that expensive."

Housing Market Largely Escapes Damage From Government Shutdown, For Now

The mortgage market should only be minimally impacted by the recent government shutdown

The federal government shut down at the stroke of midnight on September 30th as the Congress failed to pass a bill to continue funding the government. The repercussions are many, including preventing 800,000 Americans from getting paid, suspending various government services, and costing the economy approximately $1 billion per week. At least for now, however, the housing market is likely to avoid the brunt of the pain, unless the shutdown continues beyond just a few days.

While more than 90% of all mortgage loan activity is underwritten, insured, or owned by the government and its affiliated entities, initially at least, the mortgage market is likely to be only minimally impacted. New loans will continue to push through most government agency pipelines, although it is likely that the process will take longer and experience delays.

Which government agencies will be affected and how?

Specifically, mortgages purchased and securitized by Fannie Mae and Freddie Mac will be unaffected because their operations are paid for by fees charged to lenders. And the Department of Veterans Affairs will continue to guarantee mortgages for Americans that have served in the military since these loans are funded by user fees as well.

In contrast, the Department of Agriculture will suspend its loan activity, with no new housing loans or guarantees being issued through its Rural Development programs during the shutdown. The department also warns that such a scenario could cause a setback in construction start-up, and if the shutdown lasts for an extended period, a substantial reduction in housing available in rural areas relative to population.

The news is mixed when it comes to the Federal Housing Administration, which currently endorses about 15% of the entire single-family mortgage market. The FHA’s Office of Single Family Housing will remain open, albeit with a smaller staff, and thus will be able to endorse single family loans during the shutdown, and underwrite and approve new loans. The reduced staffing will cause delays, however. The FHA’s Multifamily Housing Office will be more affected and may not be able to underwrite loans. No condo projects will be approved during the shutdown. If the shutdown continues, however, and the FHA’s commitment authority runs out, then homeowners, home sellers, and the entire housing market will be impacted.

For loan originators, this means that as long as the shutdown does not last more than a week or so, operations will be minimally affected. They will still be able to write conventional (Fannie and Freddie) and FHA loans and to get an FHA case number, and the FHA Total Scorecard will still be available. Similarly, they will still be able to write VA loans and obtain Certificates of Eligibility online.

But loan processing may be delayed due to other government functions being curtailed or suspended. For example, the Internal Revenue Service will not process forms, such as the 4506 (Request for Copy of Tax Return), during the shutdown, and without income tax transcripts – required for loans to close – some processing will be delayed. The Social Security Administration will not verify social security numbers during the shutdown, slowing loan processing. And the ability to get new flood insurance policies through the Federal Emergency Management Agency will be delayed, which could affect home purchases.

A longer shutdown may have a more significant impact

The modest effects of the shutdown described above become significantly worse, however, if the shutdown drags on, and would inevitably put pressure on the housing recovery. Economists estimate that a shutdown of several weeks would cut economic growth by 1.4% as furloughed workers cut their spending and economic activity and investment slows, causing a ripple effect throughout the economy.

Ways to Manage Credit When Seeking a Mortgage

Consumer debt: Many of us have it. And most who do, have a love/hate relationship with it. If you can't make the purchase with cash, do it with debt — right? We love to know we can still consume, but we hate the bill that comes 30 days later, along with the subsequent monthly payment. Ouch!

Like it or not, your relationship with money can be best expressed on paper by how much debt you carry or don't carry, more specifically in the form of credit card debt. Credit card debt is a double-edged sword when it comes time to making high-ticket purchase like buying a home. On one end of the spectrum, having open trade lines with no debt increases a credit score, which can lower the cost of your mortgage. On the flipside, payment obligations reduce your ability to qualify, lowering how much house you're eligible for. So here's a quick guide to managing credit card debt when trying to get the holy grail (i.e. a mortgage):

How Credit Cards Help You Land a Mortgage: Credit cards that are paid current with no derogatory items or delinquencies improve and support a good credit score, which reduces your borrowing costs. Mortgage lenders typically want to see a borrower carry at least three open trade lines (and credit cards are a common form of a trade line). Examples of this would be a line limit with a department store for example or even basic Visa credit card.

Other ways credit cards help you in the mortgage process:

1. Credit cards are reported to the credit bureaus (sometimes just one or two bureaus), and are very beneficial to a credit score, assuming you have a perfect payment history.

2. Assuming you have no derogatory items or late payments, your credit card obligation can show a "pattern over time" of consistent satisfactory history.

3. If you carry no balances, this shows a lender that a person has "good character."

How Credit Cards Can Hurt Your Ability to Land a Mortgage: Credit cards, when not properly managed, have a greater effect on reducing your ability to land a mortgage than they do to improve it. Let's look at how they can do this:

1. Credit card companies are required by law to report the minimum monthly payment due, associated with any present balance carried. If the minimum payment is $100 per month, that's what will show up on the credit report, and that's the amount the lender will use, dollar for dollar. In other words, because the debt is present, how much you can borrow in terms of total house payment will be limited by $100 per month. Granted, $100 per month is small in the grand scheme of things, but the payment will reduce the amount of house payment you can take. (This goes for any minimum credit card payment.)

2. Multiple credit cards spread out with high balances and high payments limit your borrowing power because the minimum payment obligations are higher, thus reducing your potential allowed house payment.

3. Have a credit card late payment? This will tank your credit score, increasing the costs to borrow mortgage money, thereby making your home loan … drum roll, please … more pricey. (Note that a consistent pattern of lack of repayment over time is what really drops the credit score, which could also derail your loan approval.)

4. Credit card charge-offs still reporting a balance on your credit report will need to be zeroed out in order for you to successfully fund your new home loan. This will negatively impact your credit score. However, the negative effect of having an outstanding debt compounds due to the additional costs of paying off the previous charged-off balances, in addition to the higher interest for the mortgage from the lower credit score. Don't have the funds to pay off the previous bad debt? Then the loan won't happen.

Managing Credit Cards to Secure the Best Mortgage Terms: Because credit cards can either hinder or help your ability to get a mortgage, there is a fine line not to be crossed. The best scenario for your mortgage would be to have minimal or no credit card delinquencies of any kind in the past 12 months.

Are you paying off your credit card in full every month? Make sure you know when they report to the credit bureaus, so you can have the mortgage lender pull your credit report and credit score after that date so as to preserve high credit score. If there are multiple credit cards and you have the ability to consolidate the debt to reduce your minimum payment obligations, do it. Lenders are looking for cash flow after expenses. The more cash flow after expenses, the better your chances of a favorable credit decision with the lender.

Finally, if you know you want to buy a home in the near future, now is the time to get up to speed on your credit situation. Pull your credit reports and look for errors, signs of fraud, and areas that you need to work on (like payment history or debt usage, for example). You should also start monitoring your credit score so you can build your credit in order to get the best rates possible.

Consumers are allowed to get their credit reports for free once a year from each of the three credit reporting agencies through AnnualCreditReport.com. You can also obtain your score using free credit score tools and services. (Credit.com offers a snapshot of your scores and a breakdown of your credit profile to help you determine what areas you need to work on.) Whether you use a free score or you buy one from a credit scoring service, know that the number you seemay differ somewhat from the score your mortgage lender will see, but it will nevertheless give you a helpful range to work within.